If a firm is growing and expanding its accounts receivable and inventories faster than its current operating liabilities its cash flow from operation will normally be:
A) greater than net income
B) less than net income
C) greater than the change in working capital from operations
D) greater than the change in cash.

Question

Quizplus · Accepted Answer

If a firm is growing and expanding its accounts receivable and inventories faster than its current operating liabilities, it means that the firm is putting more resources into its working capital. This will decrease the cash flow from operations as more cash will be tied up in the working capital. Therefore, the cash flow from operations will be less than net income.

If a Firm Is Growing and Expanding Its Accounts Receivable